Insights

Levelized Cost of Storage Analysis 2.0

Dec 15 2016

Lazard’s Levelized Cost of Storage Analysis, conducted with support from Enovation Partners, is an analytically rigorous study of the major energy storage technologies in the context of their various uses, from large-scale, power grid-oriented applications to small-scale, residential applications.

The latest analysis (LCOS 2.0) shows cost declines in most battery storage technologies, but with wide variations depending on the type of application and battery technology.

LCOS 2.0 builds on the inaugural study conducted in 2015 with a refined methodology and the addition of new analysis that illustrates and compares the economics of “real-world” energy storage applications.

Highlights from the study include:

Due to the refined methodology for LCOS 2.0, we recommend against making broad cost comparisons to the LCOS 1.0. However, the direct comparisons that can be made show that storage costs are generally dropping. For example, the median cost of using lithium-ion technologies decreased versus last year by approximately 12%, 24% and 11% for peaker replacement, transmission investment deferral and residential use cases, respectively, partially attributable to declining capital costs, among other factors.

“Behind-the-meter” merchant energy storage systems, which are sited at factories, universities and hospitals, among other high energy use locations, show great promise. However, their economic viability depends greatly on local market structure and incentives, among other factors. For example, a battery-based storage system that is economically viable in Pennsylvania may not be viable in Texas.

Industry participants continue to expect increased demand for energy storage to result in enhanced manufacturing scale and ensuing cost declines. If industry projections materialize over the next five years, cost-effective energy storage technologies will have increasingly broad applications across the power grid, such as providing an alternative to conventional gas-fired peaking plants in certain areas, as well as extending the usefulness over the course of the day of renewable generation, like wind and solar farms.